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The power of the invisibleSustainable intangibles in the post-BEPS world

1 Sustainable intangibles in the post-BEPS world

C ontents

0 4 The increased role of intangibles in business and in transfer pricing (TP)

0 5 Intangibles drive business success, attracting greater and more focused tax authority scrutiny

0 6 A broader set of attributes is recognized as central for business success and for transfer pricing purposes

0 7 As the who, where and how for intangible management changes, so does the approach of tax authorities in allocating intangibles returns

0 9 Looking at implications for business

0 9 Implications for operating model design

1 0 Implications for TP compliance

1 0 Implications for the TP model support

1 1 Further change ahead

1 2 What is business doing about this?

1 4 Key conclusions and observations

2Sustainable intangibles in the post-BEPS world

I ntroduc tionWe stand on the brink of a technological revolution that will fundamentally alter the way we live, work, and relate to one another. In its scale, scope and complexity, the transformation will be unlike anything humankind has experienced before.1

Companies adopting new business models that are lean on people and tangible assets but heavy on intangible assets and that provide the interface between service or product providers and consumers (i.e., platform models), are quickly becoming some of the biggest in the world, and traditional “bricks-and-mortar” companies are scrambling to adapt and find their new role.2

At the same time, from a regulatory perspective, there is a big push by governments to tax the income created by these new intangible business models, starting with the Organisation for Economic Co-operation and Development’s (OECD’s) Base Erosion and rofit Shi ting S pro ect which aims to ensure that profits associated with the trans er and use o intangibles are

appropriately allocated in accordance with (rather than divorced from) value creation”.3,4

In this changing world, staying ahead of the competition while mitigating the risk of challenges is key. This requires a good understanding of what the intangible value drivers are for a company, clear insights into the processes that drive and develop these, and a conscious choice on how these are managed and controlled. The potential consequences of getting it wrong include unplanned and chaotic ownership of key assets for tax purposes, substantial complexity in determining an acceptable allocation of taxable profits between competing tax authorities and significant reputational risks. Lastly, it can be argued that any lack of clarity as mentioned above suggests that a corporation may not be applying the right level of focus on one of its most fundamental value drivers, and thus its core business.

1 Klaus Schwab, The Fourth Industrial Revolution (World Economic Forum, 2016).2 As further discussed for transfer pricing purposes, intangibles comprise not only intellectual property (IP) but also any

value creating asset which is neither financial or physical and can be protected commercially.3 “ G20 ase rosion and rofit Shi ting ro ect Aligning Trans er ricing utcomes with Value reation Actions

8–10 2015 Final Reports”, OECD, 201 . A new version o the T Guidelines has now been published Trans er Pricing Guidelines for Multinational Enterprises and Tax Administrations”, OECD, 2017. This is referred to as OECD TP Guidance thereafter in this document.

4 Action lan on ase rosion and rofit Shi ting Action OECD, 2013.

C ontributors

J oost V reeswij k

EY Europe, Middle East, India, Africa Operating Model Effectiveness Leader

N athan R ic hards

Operating Model Effectiveness

Switzerland

Sebastiaan K uij per


The Netherlands

C é line Bulard


Switzerland


In this article we will

1

3

2

Outline the evolution in the role and management of intangibles from a business and operational perspective, and how the BEPS changes in the transfer pricing treatment of intangibles respond to these business developments.

Outline the strategies that are available for responding to the changes, and illustrate our over-riding message that a structured and business-led approach that can adapt to business changes is key to a sustainable intangibles (tax) structure.

Discuss the implications of these changes for the (tax) compliance and design of operating models.


Recognizing that value increasingly comes from software, data and services, and seeking to avoid becoming a mere commodity supplier of “things”, a leading global engineering company founded in the nineteenth century is repositioning to become a supplier of technology and services. In the future, its web‑enabled smart hardware will be updated frequently, drawing on massive amounts of data and artificial intelligence (AI). To realize its strategy, it is promoting a culture of openness and willingness to risk failure; and partnering with developers of complementary technologies such as mapping and voice control.

T h e i n c r e a s e d r o l e o f i n t a n g i b l e s i n b u s i n e s s a n d i n t r a n s f e r p r i c i n g ( T P )

Businesses are transforming at an accelerating pace as new technologies are developed and deployed. As a result, there has been a substantial increase in the importance of intangibles; the nature of those intangibles, and the ways in which they are managed, have changed. The BEPS initiative was launched in response to some of these developments. But even without the BEPS initiative, it must be recognized that the business context for which tax compliance and planning strategies are framed has changed radically.

There are three key points to highlight in this area and these are discussed in greater detail in the ollowing sections

1 Intangibles drive business success, attracting greater and more focused tax authority scrutiny.

2 A broader set of attributes is recognized as central for business success and for transfer pricing purposes.

3 As the who, where and how for intangible management changes, so does the approach of tax authorities in allocating intangibles returns.


I n t a n g i b l e s d r i v e b u s i n e s s s u c c e s s , a t t r a c t i n g g r e a t e r a n d m o r e f o c u s e d t a x a u t h o r i t y s c r u t i n y

“ Intellectual property (IP) is now the most valuable asset class on the planet” states a World Intellectual Property Organization (WIPO) publication dated 2016. The analysis continues p to the 1 0s tangible assets accounted or 0 percent o company value; the rest was made up by intangibles, including IP. Thirty years later, the reverse is true with 80 percent of company value made up of intangibles.”5

In response as noted in the introduction and re ected in EY’s 2016 survey of 623 transfer pricing executives in urisdictions across 1 industries tax authorities are increasingly focusing on intangibles issues in controversy.6 While the key source of controversy remains the transfer pricing of goods and services, taxpayers expect a shift in the emphasis of controversy

toward transfer pricing of intangibles and permanent establishments (PEs), both areas of key focus for the

S pro ect. urrent experience as well as ongoing developments with respect to the taxation of intangible related returns, suggest that if anything, this may be an understatement.

5 Intellectual property finance and economic development WIPO Magazine, February 2016, via www.wipo.int/wipo_magazine/en/2016/01/article_0002.html, accessed 18 February 2018.

6 In the spotlight new era o transparency and ris EY 2016 Transfer Pricing Survey Series, EYGM Limited, 2016.

Source 201 Trans er ricing Survey Series

L eading sourc es of tax c ontrov ersy in transf er pric ing

W h i c h h a v e b e e n y o u r m o s t i m p o r t a n t a r e a s o f t a x c o n t r o v e r s y i n t h e l a s t t h r e e y e a r s ?

I n t h e n e x t t w o y e a r s , w h i c h o f t h e s a m e a r e a s d o y o u e x p e c t t o b e t h e m o s t i m p o r t a n t a r e a s o f c o n t r o v e r s y w i t h r e g a r d t o t a x ?

Transfer pricing of goods and services

72%64%

39%

44%

32%33%

28%34%

27%30%

14%34%

12%22%

10%10%

Transfer pricing of intragroup financial arrangements

Transfer pricing of intangible property

Permanent establishments

Indirect tax — customs valuation or duty*

Transactional taxes

Factors relating to fiscal residence

Indirect tax — VAT or GST*

2016 2013

Transfer pricing of goods and services

75%64%

48%44%

49%41%

25%26%

44%26%

15%26%

11%16%

15%9%

Transfer pricing of intragroup financial arrangements

Transfer pricing of intangible property

Permanent establishments

Indirect tax — customs valuation or duty*

Transactional taxes

Factors relating to fiscal residence

Indirect tax — VAT or GST*

2016 2013

* Indirect tax was one single choice in 2012 survey. Multiple responses allowed.

http://www.wipo.int/wipo_magazine/en/2016/01/article_0002.html


A b r o a d e r s e t o f a t t r i b u t e s i s r e c o g n i z e d a s c e n t r a l f o r b u s i n e s s s u c c e s s a n d f o r T P p u r p o s e s

Although patented products remain important intangibles, there has been a shift in emphasis toward intangibles which are more di ficult to define and protect and which are constantly evolving or example

► Marketing intangibles, which are constantly evolving as businesses adapt to changing market requirements and opportunities

► “Know-how”, including lessons from failed initiatives (negative know-how)

► Data (and the insights provided through applying analytics and AI on this data) are recognized as a critically valuable input to all areas of the business

► Composite intangibles, i.e., combinations of different intangibles forming, for example, a business model, have greatly increased in importance

► Customer interfaces which use digital enablers, predictive analytical tools and AI to transform existing businesses, improve business value and further facilitate innovations should themselves be seen as intangibles

As a result, the traditional value chain has evolved into an interactive value circle, with data and insights at the center.

Companies are increasingly acting as part of an ecosystem or value-web, where improved insights will drive different levels and types of collaboration, all fueled through greater insight and the ability to rapidly adapt to business opportunities and fence off competitive threats. These new types of IP, as well as changes in the processes and contributors to the development of the IP, put pressure on traditional, static tax models aimed at capturing the value of this IP.

In a transfer pricing analysis, legal ownership remains the starting point. However, in response to the developments discussed above, the OECD’s new TP guidance does not follow either a legal or an accounting approach to the definition o intangible assets which i “owned” by an entity, should be remunerated. Rather, it defines an intangible as

7 See aragraph . hapter VI o Trans er ricing Guidelines or Multinational nterprises and Tax Administrations OECD, July 2017.

… Something which is not a physical or a financial asset which is capable o being owned or controlled for use in commercial activities, and whose use or transfer would be compensated had it occurred in a transaction between independent parties in comparable circumstances.7

The updated definition or trans er pricing purposes includes all intangibles as normally understood, but not synergies arising from the existence of a group of companies or market characteristics, for example, proximity to markets or low labor costs.

D ata and I nsights

Produc tion

Distribution

D esign &

Serv

ices

SalesM ark etin

g

I nnov ation


A s t h e w h o , w h e r e a n d h o w f o r i n t a n g i b l e m a n a g e m e n t c h a n g e s , s o d o e s t h e a p p r o a c h o f t a x a u t h o r i t i e s i n a l l o c a t i n g i n t a n g i b l e s r e t u r n s

When the development and maintenance of intangibles was the sole preserve of easily identifiable people in white coats wor ing in or example centers it was relatively easy to determine where intangibles were developed. And, until relatively recently tax authorities accepted that legal ownership and the financing o the development o intangibles con erred a right to the profits arising rom their exploitation a ter routine returns had been allocated to easily identifiable development, production and sale entities.

ow it is much more di ficult to understand where and by whom intangibles were developed and tax authorities have created a new framework for allocating the returns to intangibles which focuses not only on who developed the intangible (functional contributions) but also on the precise nature of their roles.

The relevant business developments here include

8 xample areas are design trend spotting range definition material selection social media testing price definition pattern creation and mathematical fit testing.

I ntangibles m ay be dev eloped or ref reshed by c ross-f unc tional v irtual team s assem bled f rom m ultiple geographies, of ten to undertake a specific project, f or ex am ple, “ m anuf ac turing” bec om ing inv olv ed m uc h earlier in produc t dev elopm ent.

I ntangibles m ay be dev eloped in c oalition with third parties inc luding users.

T he applic ation of A I to inc reasingly c om plex dec ision-m ak ing proc esses. 8

I m portant c ontributions m ay be m ade by m anagers with another im portant “ day j ob” , f or ex am ple, a territorial sales m anager tak ing a leadership responsibility f or a brand.


11 See aragraphs . hapter VI o Trans er ricing Guidelines or Multinational nterprises and Tax Administrations”, OECD, July 2017. These are examples. The key point is that the new TP guidance requires analysis of contributions to intangibles aligned with the facts of the case.

See Paragraphs 1.60, 1.65, 1.68, Chapter I of “OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations”, OECD, July 2017.

10 See Paragraphs 1.66, Chapter I of “OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations”, OECD, July 2017.

The OECD’s new TP guidance places considerable emphasis on the governance of development, enhancement, maintenance, protection and exploitation (DEMPE) functions in determining the allocation o the profits derived rom intangibles. After rewarding functional contributions, which can be priced using conventional transfer pricing methods, the new TP guidance implies that the residual returns or losses should be captured by the entity(ies) controlling the important risks associated with DEMPE functions (control test). The notion of control is based on transfer pricing principles established in Chapter 1 of the OECD TP Guidelines on the treatment of risk.

To meet the control test, an entity must have the capacity and capability to make the relevant decisions and must actually do so. Neither setting a policy environment for the relevant decisions nor formalizing decisions made in other locations is su ficient to meet the control test.10 The OECD TP Guidelines do ascribe special significance to certain important unctions

all o which are governance control unctions

► Design and control of research and marketing programs

► Direction of and establishing priorities for creative undertakings including the direction of research

► Control over strategic decisions regarding intangibles development

► Management and control of budgets

► Important decisions on the defense and protection of intangibles

► Ongoing quality control over the functions undertaken by independent contractors and associates11

But where and by whom these decisions are being made may not be easy to identify. Nor can it be assumed that the locus of decision-making will be unchanging. And when artificial intelligence AI is being applied, is the entity exercising (automated) control activities the “owner” of the intangible, or is it the entity that defines the rule setting o the AI


L o o k i n g a t i m p l i c a t i o n s f o r b u s i n e s s

The business developments and the OECD’s new TP guidance previously outlined have implications for operating model design as well as for transfer pricing and broader tax strategies.

I m plic ations f or operating m odel designIt has always been the case that the design of the operating model, and more particularly the locations in which ey managers are located drives where profits should be recognized for tax purposes. This also makes sense from the perspective that while companies work across borders, the corporate tax sovereignty of a country, in principle, stops at the border.

But, as outlined above, the BEPS changes mean that multinationals can expect even greater scrutiny from tax authorities of the locus of control of the business processes which drive their profits.

Moreover, given the pace of business evolution, the value attributed to the new kinds of intangibles (including the AI related and business model related intangibles) will become an increasing focus for tax authorities. We expect that tax authorities will further refine their ramewor s or addressing the role o key intangibles within the future value chain and the changing role of existing functions. In particular,

the role of business concepts or ideas and access to capital is expected to intensify as they become key determinants of success. Furthermore, access to customer data and the ability to e ficiently utili e it to better serve the customers will become a ma or driver for operating models, with related permanent establishment, withholding tax and indirect tax effects.

While we would not advocate allowing “tax to drive the business”, having an integrated design considering all of the different layers of the operating model as shown below is key in order to create a robust, sustainable model from a business and tax perspective.

Applying this layered-operating model will also “force” companies to articulate a clear vision and a set of business processes, metrics and control frameworks to purposely manage and create intangibles. Given the immense value represented by intangibles, this clear sense of purpose and managerial focus on intangibles should drive incremental business performance.

Furthermore, given the continuing developments, this also means planning for agility in the governance model, and accommodating the fast pace of change and the emergence of new business models.

T ransac tions and phy sic al f ootprint

► Corporate and commercial locations

► Routes to market

► Manufacturing and logistics footprint

► Transaction ows — indirect

tax T ows

Business proc esses and organiz ation c hange

► Business unit structure

► Organization design

► Roles and responsibilities

► Functional and transactional processes design

► Resource capabilities

T ax and legal reorganiz ation

► Legal entity structure

► Corporate tax/TP

► Compliance, reporting

► Global trade

► VAT Indirect taxes

► Regulatory

► HR, labor law

I T sy stem s

► Transactional IT

► Intercompany trading

► Functional IT tax reporting

► Tax reporting

► VAT and customs configuration

► Transfer pricing operationalization

G overnance, finance and perf orm anc e m anagem ent

► Policies

► Decision rights

► Controls and risk management

► Internal and external reporting

► Contracts and Service Line Agreements

► KPIs and performance management

C om pany operating m odel

Strategy Business model definition

O perating m odel lay ers

1 0Sustainable intangibles in the post-BEPS world

I m plic ations f or T P c om plianc eSome tax authorities have repeatedly sought to claim that the entity they are auditing “owns” unrecognized intangibles (for example, local marketing intangibles) or makes under-rewarded contributions to intangibles.

y broadening the definition o intangibles and the breadth of compensable contributions, the OECD’s new TP guidance provides tax authorities with a toolkit for making these challenges.

Taxpayers need to be a step ahead, which means identifying, evaluating and documenting intangibles and functional contributions as outlined in the diagram below.

Within this new reality, the key emphasis will be on steps three and four, i.e., who is contributing to the creation of intellectual property (IP), where are they located and what is their contribution. This will, in most cases, not be a simple exercise. Given the increasing mobility of people, as well as the above mentioned developments with respect to the nature of intangibles and the way they are created (for example, through small single pro ect cross border teams third party collaborations or even AI), having a robust and dynamic framework and TP method to capture this will be key.

I m plic ations f or the T P m odel supportMost transactions are still priced using “one-sided” transfer pricing methods. A reliable measure of the profits that one party to the transaction i independent, would realize is determined and residual profit is captured by the other party to the

transaction. The exception, of course, is where more than one party makes contributions that cannot be reliably valued with the benchmarks available and the profit split method is then selected.

This approach is under pressure because of the increased transparency to tax authorities of total value chain profit and where it is recogni ed or tax purposes, as a result of country-by-country reporting requirements under BEPS Action 13.12

But more fundamentally, in a world of multiple intangibles and contributions from across the business, traditional methods may break down, and it becomes more and more li ely that profit split methods will be applied. This is not a regulatory change; it is really the result of changes in business reality that make the traditional trans er pricing methods more di ficult to apply.

This issue is particularly important for companies in which the control of relevant governance processes is not highly centralized.

12 Guidance on the implementation o ountry by ountry eporting S Action 1 OECD, 2017.

I dentif y and assess

Identify all intangibles underpinning profit drivers

Determine ownership of legally protected intangibles

Describe DEMPE functions for each intangible and identify “important functions”

Analy e financial and DEMPE functional contributions by legal entity focusing on control of important functions

Determine which entities’ contributions can be rewarded using conventional methods and share residual profit between entities controlling important functions

Assess their relative importance

D eterm ine legal ownership

D esc ribe D EM PE f unc tions

A naly z e c ontributions

Selec t T P m ethod f or eac h entity

1 2 3 4 5

1 1 Sustainable intangibles in the post-BEPS world

F urther c hange aheadne o the ey drivers o the S pro ect

was the perceived base erosion and profit shi ting from online activities. On 5 October 2015, the

released its final report on the tax challenges of the digital economy under Action Item 1 of its

S pro ect.13 The document does not recommend specific measures to address the digital economy and therefore acknowledges that special rules designed exclusively for the digital economy would prove unworkable. It does identify key features of the “new” business models of the digital economy that may exacerbate BEPS, including e-commerce, app stores, online advertising, cloud computing (including “content-as-a-service” generally) and participative networ ed plat orms. Identified broader tax challenges of the digital economy include intangibles relevant topics, such as how to attribute value created from

the generation of data through digital products and services and determining the share o profit attributable to these value drivers.

hile Action Item 1 does not provide a final answer to the challenges of intangibles in the digital economy, it re ects the due attention to the new topics as well as a ourney towards a more holistic approach to the definition o intangibles and their contribution to the value chain. An updated version of the report is expected in the coming months14, which will likely include a more advanced analysis and more directive recommendation, given that this was one of the most contentious areas at the start o the pro ect which has only been grazed by the existing measures. Furthermore, at an EU level, further steps with respect to taxing the digital footprint of companies are already under consideration.15

13 Addressing the Tax hallenges o the igital conomy Action 1 — 201 Final eport OECD, 2015.14 Following the public consultation in September, October 2017, the Task Force on the Digital Economy (TFDE) is expected to

deliver an interim report on the implications for taxation of digitalization to the G20 Finance Ministers in April 201815 See the uropean nion s communication on A Fair and ficient Tax System in the uropean nion or the igital Single

Mar et o 21 September 201 available at https ec.europa.eu taxation customs sites taxation files communicationtaxation_digital_single_market_en.pdf.

Sustainable intangibles in the post-BEPS world 1 2

W h a t i s b u s i n e s s d o i n g a b o u t t h i s ?As a result o the regulatory and business changes companies may have a significant mismatch between the geographic recognition of returns for tax purposes and the locus o contributions to intangibles as defined by the s new T guidance in their operating models. Further adding to this is the fact that the business strategy and even business model may be sub ect to or need to change.

nderstanding whether there is a mismatch as ust defined is both essential in deciding whether action is needed and in determining the urgency and direction of change. This requires an understanding of the nature, ownership and importance of intangibles and an analysis of contributions to these intangibles, ultimately mapped to entities or countries. Once this is done, there are essentially three approaches available to address mismatch, as depicted below protect enhance or trans orm.

T hree approac hes to address m ism atc h: Protec t, Enhanc e or T ransf orm

A m bition lev el

D egree of c hange

Challenge existing operating model regarding potential group synergies and agility to react

to changing environment

Review current operating model with regards to tax compliance

T ransf orm f undam entally the c om pany operating m odel f rom a business and tax perspec tiv e

Enhanc e ex isting operating m odel by realloc ating I P ownership, am ending proc esses and pric ing m odel

Moving the (economic) IP ownership and structuring the related management and control within a hub location to align substance, IP process and pricing

Reframing the existing IP process into a virtual IP generating team with a single legal IP owner but from a tax perspective a profit split allocation used to allocate related income and economic IP ownership

Complete redesign of the existing operating model, e.g., moving from a vertically integrated to a horizontal organization

Moving from brick to click with related changes in structure, processes and value drivers

Moving from a product to a service based model, redesigning the key value drivers, product offerings and related capabilities

Protec t ex isting tax and business f ram ework by im prov ing on substanc e, gov ernanc e or pric ing

To further illustrate the above, the example overleaf outlines a company which has taken steps within this ourney. Although this example had sector and company specific considerations the undamental uestions and challenges faced are something that applies for (almost) all companies, regardless of sectors or locations.

T ransf orm O p e r a t i n g

m o d e l

Enhanc e O p e r a t i n g

m o d e l

Protec t O p e r a t i n g

m o d e l


Ex am ple A S based diversified industrial products company has three different business units and a regional management model. Legal and economic ownership of intangibles is centralized in the US. R&D within the company is a separate, cross-business unit unction that has significant local activities

especially with respect to the localization of intangibles, with limited central governance in place. In light of a recent acquisition as well as new collaboration pro ects it is expected that the IP development process will become more fragmented going forward.

In order to respond to the changed rules and environment, the company decided to move to a regional operating model, with intangibles ownership and management

also set up on a regional basis. This included a transfer of the existing ownership of intangibles as well as a redesign of the existing intangibles development process and its governance, which is split between a more routine, commercial related development function and a more fundamental R&D process, steered and managed within the regional hubs. This allowed the company to have a level of central IP ownership and control to drive strategic intangible development, while making optimal use of the localization possibilities. To further support this, the commercial function was set up as a single entity with local branches, creating

exibility with respect to location and movement of personnel and activities.


K ey c onc lusions and observ ationsI n n o v a t i o n , d i s r u p t i o n a n d ( p r o d u c t o r s e r v i c e ) d i f f e r e n t i a t i o n a r e e s s e n t i a l i n g r e d i e n t s t o w i n i n t o d a y ’ s c h a l l e n g i n g b u s i n e s s e n v i r o n m e n t .

T h e i n t a n g i b l e s c r e a t e d b y t h e s e t h r e e i n g r e d i e n t s a r e p o t e n t i a l l y t h e m o s t v a l u a b l e a s s e t s o f b u s i n e s s e s i n t h i s d a y a n d a g e , r e g a r d l e s s o f w h e t h e r a t r a d i t i o n a l c o m p a n y i s r e - i n v e n t i n g i t s e l f o r a c o m p a n y h a s b e e n b o r n i n t h e d i g i t a l a g e .

T a x a n d t r a n s f e r p r i c i n g g u i d e l i n e s h a v e b e e n u p d a t e d a n d a r e c o n t i n u i n g t o e v o l v e t o b e t t e r r e c o g n i z e a n d c a p t u r e t h i s v a l u e , b u t t o also better reflect various business functions that contribute to these i n t a n g i b l e s . N o l o n g e r c a n w e i d e n t i f y a s i n g l e f u n c t i o n a s b e i n g t h e o w n e r o f a n d r e s p o n s i b l e f o r t h e s e i n t a n g i b l e s , b u t r a t h e r t h i s v a l u e i s c r e a t e d b y d i f f e r e n t p a r t i c i p a n t s a l o n g a c o m p a n y ’ s v a l u e c h a i n , i f n o t i n a n e c o s y s t e m .

S u c c e s s f u l c o m p a n i e s t h e r e f o r e n e e d t o d e s i g n t h e i r o p e r a t i n g m o d e l s a r o u n d t h r e e k e y t h e m e s :

1

3

2

Develop an effective set of specific processes, roles, metrics a n d g o v e r n a n c e t o i n v e n t , f u n d , o w n , e n h a n c e a n d e x p l o i t i n t a n g i b l e s .

Es t a b l i s h , m e a s u r e a n d m a n a g e a n e c o s y s t e m o f e m p l o y e e s , s u p p l i e r s , c o n t r a c t o r s a n d a l l i a n c e p a r t n e r s t o w o r k o n this — including a specific view on the concept of “location”, i . e . , w h e r e t h e a c t u a l v a l u e i s c r e a t e d .

R e c o g n i z e t h e u p d a t e d O EC D T P G u i d e l i n e s f o r intangibles, including the clarified DEMPE process definition, and align the business and after-tax o u t c o m e s t o t h i s .

H o w e v e r , i t i s t h e s i m u l t a n e o u s o p t i m i z a t i o n o f t h e s e t h r e e t h e m e s t h a t t r u l y a l l o w s c o m p a n i e s t o d e s i g n w i n n i n g o p e r a t i n g m o d e l s . W h i l e t h i s i s n o t a n e a s y t a s k , i t a p p e a r s t h a t t h e i n c r e d i b l y h i g h p a c e o f i n n o v a t i o n a n d d i s r u p t i o n , c o m b i n e d w i t h t h e n e w T P g u i d e l i n e s , h a s m o v e d t h e d e b a t e o n i n t a n g i b l e s t o a h i g h e r l e v e l o f s o p h i s t i c a t i o n a n d i m p o r t a n c e .

S o , t h e b i g q u e s t i o n i s , w h a t a c t i o n a r e y o u t a k i n g ?

1 4


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